Estate Tax Rate California: What High-Net-Worth Families Need to Know for 2025 and Beyond

Most wealthy California families underestimate how quickly estate taxes can erode generational wealth — and 2025 may be the last year to take decisive action before exemption rules change and new legislative threats emerge. In this comprehensive strategist’s guide, we dismantle myths around the estate tax rate in California, explain federal and state pitfalls, and map out proven strategies. Whether you run a family business, own commercial real estate, or just want to keep more assets in the bloodline, read this before your next move.

This information is current as of 9/16/2025. Tax laws change frequently. Verify updates with IRS or FTB if reading this later.

Fast Fact: California’s Estate Tax Rate in 2025

For tax year 2025, California imposes no state-level estate tax. However, the federal estate tax is very real: estates worth over $13.61 million (single) or $27.22 million (married) get taxed at up to 40% above that exemption. Pending legislation could drop this exemption by half, triggering massive new exposure for California’s wealthy families. See the IRS’s Estate Tax guidance for specifics.

Why the “No CA Estate Tax” Myth Sets Heirs Up for Disaster

It’s common for high-net-worth clients to assume residency in California shields them from estate tax altogether. Here’s the problem: federal law – not state – is what threatens your wealth transfer. And since California frequently debates bringing back a state estate tax (especially as state budgets tighten), going “all in” on the idea you’re safe is reckless. For example, if you have a $30M estate, $2.78M is subject to a 40% federal hit—costing your heirs $1.11M if exemption laws don’t change. If CA passes a 16% state estate tax (as previously proposed), that’s another $444,800 gone. You can’t plan based on outdated rules.

Proven Ways High-Net-Worth Families Slash Estate Tax Exposure

Most strategies boil down to two priority moves: accelerate gifting under current rules and use advanced trusts before 2026. For current 2025 exemptions, the IRS allows lifetime gifts up to $13.61M per person without triggering the estate tax. But this is scheduled to fall below $7M after 2025 unless Congress acts. Strategies include:

• Irrevocable Grantor Trusts — Remove appreciation outside your estate, locking in today’s high exemption
• Spousal Lifetime Access Trusts (SLATs) — Allow one spouse to shelter assets while keeping family access
• Qualified Personal Residence Trusts — Remove the value of your primary home or vacation home from your estate at a discount
• Charitable Lead/Remainder Trusts — Blend philanthropy with extreme tax leverage for heirs
• Intra-family Loans and Installment Sales — Move future appreciation outside your estate

For a detailed breakdown of advanced strategies, explore our 2025 California Estate & Legacy Planning Guide.

What Happens If the Federal Exemption Drops in 2026?

The “one big gotcha” facing wealthy California families: unless you use current gifting exemptions now, you lose them forever. Analysts expect the exemption to revert to around $7M per person for decedents who die after December 31, 2025. For a married couple, that’s a $20.44M loss in tax-free transfer room if you wait. Example: High-net-worth couple with $40M net worth fails to plan; $12.78M exposed to 40% tax = $5.11M lost to government instead of heirs. If California adds any state-level estate tax (proposed rates: 8–16%), losses increase. Action before December 31, 2025 is non-negotiable. See IRS estate tax rules.

Key Traps That Cost Heirs Millions (and How to Dodge Them)

Red Flag: Waiting for Congress to act. Most families miss the optimal window for large gifts due to “hope” legislation will extend exemptions. That’s wishful thinking. The IRS confirmed (see IRS Notice 2019-19) gifts made under the high 2025 exemption will be honored even if the exemption drops later. Lock in today’s limit.

Pro Tip: Use entity structuring (LLCs, FLPs) to discount business and real estate value for tax purposes—an $18M company may appraise for just $13M in tax math, saving $2M+ in estate tax if structured correctly.

• Common Trap #1: Failing to use valuation discounts by gifting control interests in illiquid assets (works for business owners and real estate families).
• Common Trap #2: Not updating the estate plan to reflect QTIP trust, IRAs, or life insurance changes after major tax law shifts.
• Common Trap #3: Neglecting California tax portability rules if spouse dies first—can cost up to $5M in lost exemption room.

Explore advanced estate tax planning options with our advisory team.

KDA Case Study: High-Net-Worth Family Avoids $9.7M Estate Tax Hit

Client: Real estate entrepreneur couple, $38M net worth, Orange County. Their existing plan only sheltered $26M; $12M at risk of 40% federal estate tax if they did nothing. KDA restructured their estate: implemented two SLATs, moved $8M via discounted business interests to heirs, set up a Charitable Lead Annuity Trust, and captured $13.61M current exemption per spouse. Result: Reduced exposed estate to $0 if both die in 2025. Tax savings: $9.7M. Fee: $70,000. ROI: 138x. The family preserved legacy, remained in control, and sheltered generational income streams.

What’s the Difference Between Federal and California Estate Tax?

Federal estate tax applies nationwide at death for estates above exemption. California itself has no estate tax as of 2025 — but watch for renewed ballot measures to restore a “death tax” at rates as high as 16%. Even if they never pass, IRS rules take priority. If your assets include out-of-state real estate, other state estate taxes could apply regardless of residency—always review all jurisdictions. For more, see the IRS’s Estate Tax Center.

How to Use Trusts and Entity Structuring for Maximum Advantage

Trusts are the backbone of high-net-worth estate planning. The right combination (e.g., SLATs, GRATs, ILITs, QPRTs) lets you shelter more wealth, provide for grandchildren, and reduce audit risk. Entity structuring—using LLCs or Family Limited Partnerships—lets you “leverage” valuation discounts and lock in current limits, especially if planning to transfer business or real estate. Consult our estate tax planning team for bespoke options.

Will These Strategies Raise Audit Red Flags?

Huge lifetime gifts and aggressive discounting often flag IRS attention, but you’re safe if you follow bulletproof documentation and independent appraisals. According to IRS Form 709 rules, you must report gifts and provide substantiated valuations. Most audit failures result from sloppy paperwork, not the strategies themselves.

FAQ: Estate Tax Rate and Planning Questions for California Families

What if my estate is right at the exemption threshold?

Plan for growth. If real estate or shares appreciate, today’s “safe” estate will trigger tax tomorrow. Lock in today’s exemption by gifting or trusts now.

Can life insurance be taxed as part of my estate?

Yes, unless you use an irrevocable life insurance trust (ILIT) to exclude death benefits from your taxable estate. See IRS Pub 559.

What happens if Congress lets the exemption “sunset”?

It will drop to ~$7M/person in 2026, exposing millions more to estate tax. All gifts made under the 2025 exemption are honored permanently per IRS Notice 2019-19.

Book Your Custom Estate Tax Strategy Session

Don’t gamble your legacy on hope or outdated assumptions. Our estate strategists will analyze your real estate, business, and portfolio to create a customized blueprint—showing how you can shelter millions from looming estate tax changes and California political risks. Book your private consultation now and get actionable recommendations before December 2025. Protect your wealth, empower your heirs, and ensure every dollar stays in your family for generations.